The Internal Revenue Service says B.J. “Red” McCombs and a business part- ner used a sham tax shelter.

The Internal Revenue Service says B.J. “Red” McCombs and a business part- ner used a sham tax shelter.

McCombs, partner lose in Supreme Court

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SAN ANTONIO — The Internal Revenue Service can impose severe financial penalties on San Antonio billionaire B.J. “Red” McCombs and a business partner over what it called a sham tax shelter, the U.S. Supreme Court ruled Tuesday.

McCombs and Woods participated in a tax shelter designed to generate large paper losses to reduce their taxable income in 1999. McCombs, who was owner of the Minnesota Vikings at the time, was expecting high income from the expansion of the National Football League, Bloomberg News previously reported.

McCombs and Woods claimed losses of more than $45 million from two partnerships, even though they contributed about $3.2 million to the partnerships.

After an audit in which it ruled the partnerships were a sham tax shelter, the IRS billed McCombs and Woods for unpaid taxes and a 40 percent penalty.

The high court case concerned only the 40 percent penalty, not the underlying transactions, Bloomberg News reported.

The tax shelter used by McCombs and Woods was developed by the now-defunct Dallas law firm Jenkens & Gilchrist. The firm's demise was related to its promotion of what the IRS described as “abusive and fraudulent tax shelters.”

Jenkens & Gilchrist agreed to pay a $76 million penalty to the IRS over its promotion of the tax shelters. According to a 2007 statement released by the IRS, an estimated 1,400 investors affected by the firm's advice would owe interest and penalties on their underpayment of tax.

An IRS spokeswoman said in an email that it was prohibited from discussing private taxpayer information.